This Critical Metric Will Let Us Know When PZZA Is Ready To Recover

July 24, 2018

LikeFolio's Consumer Happiness data on Papa John's has been incredible at spotting and quantifying consumer reaction to both the pizza the company delivers and the scandals its founder has gotten them into.

When not operating under a PR crisis, consumer happiness for Papa John's tends to be in the mid 60's, which isn't great but is higher than its rival Dominos (57% happy).  This suggests that consumers actually prefer the product Papa John's is putting out there to many of its rivals.

Unfortunately, that's where the good news ends for the pizza maker.  As you can see in the chart below, Papa John's has been plagued with scandals over the past year that have significantly diminished consumer perception of their brand.

NFL Boycotts Scandal

The company took a massive brand hit during the NFL Boycott scandal, where Papa John's founder John Schnatter blamed the NFL boycotts for reduced pizza sales.  Consumer happiness plunged as people took to social media in masse to complain about the company.  We saw four waves of negativity through the NFL season, each pushing sentiment lower.

Once football season ended, things got back to normal for Papa John's.  Consumer happiness rebounded, and the company stayed scandal-free.  That is, until a few weeks ago.

Conference Call Fallout

Earlier this month it was revealed that Mr. Schnatter used the n-word on a conference call with an image consulting firm during an exercise where he was asked how he would distance himself from racist groups.  The story went public, Mr. Schnatter apologized and resigned, and once again the company was embroiled with controversy.

Consumers expressed their outrage online, taking consumer happiness for Papa John's to all-time lows at under 35% happiness.  Though the volume of tweets was much lower than the NFL boycott scandal, the overwhelming negativity was even worse.

Playing PZZA From Here -- What To Watch For

All of this negativity has had an impact on Wall Street, who are becoming concerned that Papa John's has lost some customers permanently, and may experience "brain drain" as quality employees seek employment at a company with less scandal and negative drama.

Papa John's stock has lost nearly a third of its value since the NFL Boycotts scandal broke, and has recently fallen to levels not seen since the beginning of 2016. The company has even engaged in a scheme called a "poison pill" in order to keep Mr. Schnatter, who still owns 29% of the company, from buying enough shares to take back control of the company.

Here are the two key things we'll be looking at LikeFolio data to determine over the next 3-6 months:

  1. Does Consumer Happiness rebound to its normal 65%-70% level?  If history serves as any guide, this should happen sometime early in the 4th quarter.  If consumer happiness remains down near 50%, we'll know that this recent scandal's impact on the Papa John's brand is going to be a long-term issue.
  2. How will Q3 and Q4 purchase intent mentions stack up compared to the same period a year ago?  Purchase Intent is by far our most important and predictive metric because it focuses on indications that people are actually spending money with the company.  If Papa John's can maintain or grow from 2017 numbers in the final two quarters of the year, this scandal-driven drop in share price could prove to be a bargain opportunity.

We'll be keeping a very close eye on the consumer behavior around Papa John's for indications of a turnaround in the company's fortunes.  If and when we see data supporting a resurgence at the company, LikeFolio members will be the first to know.

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